Commercialization Activities as Part of the Tenure Process for Academics

Rachel Abbey McCafferty has published an article in Crain's Cleveland Business titled, State is Pushing Universities to Bring Research to Market, on March 5, 2017.  The article outlines how the proposed Ohio state budget includes provisions concerning making commercialization activities by academics part of the tenure process.  The article notes how the purpose of the proposal is to direct academics to engage in research that may have a potential market.  This, of course, is one of the criticisms of the Bayh-Dole Act--that indeed the Act would push researchers toward directing research efforts to "real world" problems as opposed to "blue sky" research, which could have broad uses.  Some universities have unilaterally made the move to requiring commercialization activities for academics for tenure, but this is one of the first state "top down" directives for research institutions to require it.  Notably, the state is apparently striking a nice balance by stating that commercialization activities are just one route to be considered in the tenure process--it is not the only way to obtain tenure.  This nicely preserves flexibility for each researcher to make their own choices.  There is still the question of whether requiring commercialization efforts for tenure is necessary given the substantial market incentives available to researchers. 

The article also discusses a new institute to be formed in Ohio, which will direct commercialization activities in state institutions.  I am not very familiar with the technology transfer processes in Ohio, but this sounds like a good idea to coordinate commercialization efforts and provide accountability and stewardship for public research funding.  Notably, Governor Kasich, the recent presidential candidate, is reportedly a big fan of technology transfer, and its potential to create jobs and benefit the public.  (Hat tip to Technology Transfer Tactics for the lead to the article.)

Public Universities Bringing More Patent Suits and May Be Immune to IPRs

A recent Technology Transfer Tactics article by Jesse Schwartz published on February 22, 2017 states that universities are bringing more intellectual property suits, particularly patent infringement actions, against large companies.  Notably, the article points to the University of Minnesota infringement suit against Gilead Life Sciences and states:

Litigation like the UM lawsuit indicates that universities are warming up to the idea that fighting for their patent rights is worth the effort and expense, says Joshua H. Haffner, JD, an attorney with Haffner Law in Los Angeles. The UM case continues a trend of schools stepping up and demanding payment for use of their patents, he notes. Carnegie Mellon University settled a patent infringement case with Marvell Technology Group for $750 million in 2016, and later that year a jury ordered Apple to pay the University of Wisconsin more than $234 million for using its microchip technology in iPhones and iPads without permission. In 2015, a jury awarded Boston University more than $13 million from three companies that infringed on its patent for blue light emitting diodes (LEDs).

“This trend is continuing because they’re making money off the cases,” Haffner says. “Patent infringement cases can be very profitable, and with every win by a university others are looking at that and saying maybe they could reap the same rewards. There are other principles at play, like protecting the inventors and the principle of ownership, but really if the invention is not making money those principles tend to fall by the wayside.”

Interestingly, the Patent Trial and Appeal Board (PTAB) recently decided the Covidien v. University of Florida Research Foundation (UFRF) matter.  In that matter, the PTAB analogized inter partes review proceedings (IPRs) to litigation and decided that public (state) universities have 11^th Amendment immunity against IPRs.  Basically, this means that parties cannot bring IPRs against public universities to challenge their patents.  Notably, this immunity may be waived by the public university.  Interestingly, UFRF brought an action in state court for breach of a license agreement.  Covidien counterclaimed for a declaratory judgment of noninfringement and then filed IPRs at the United States Patent and Trademark Office challenging UFRF’s patents.  Covidien then removed the action to federal court; however, the federal district court sent the action back to state court because of UFRF’s 11^th Amendment immunity.  That decision is pending resolution at the U.S. Court of Appeals for the Federal Circuit (Federal Circuit). 

Interestingly, the PTAB states:

Petitioner additionally argues that “immunizing patents owned by alleged state entities from IPR proceedings would have harmful and far-reaching consequences.” Opp. 15–17. Here, Petitioner’s arguments are three-fold. One, invalid patents would stand simply because they are assigned to a state entity. Two, a patent owned by a monetization foundation affiliated with a state university would be insulated from the inter partes review process. Three, determining whether an entity is entitled to sovereign immunity is a fact-intensive inquiry that the Patent Office is not designed to adjudicate.

With respect to the first two arguments, we are cognizant of the fact that applying an Eleventh Amendment immunity to inter partes review, absent waiver by the state entity4, precludes the institution of inter partes review against a state entity entitled to Eleventh Amendment immunity. This, indeed, is precisely the point of the Eleventh Amendment, which is the preservation of the dignity afforded to sovereign states. “The preeminent purpose of state sovereign immunity is to accord States the dignity that is consistent with their status as sovereign entities.” FMC, 535 U.S. at 760 (citing In re Ayers, 123 U.S. 443, 505 (1887)). When sovereign immunity conflicts with legislation, Congress may abrogate sovereign immunity if it has unequivocally expressed its intent to abrogate the immunity and has acted pursuant to a valid exercise of power. Seminole Tribe, 517 U.S. at 55. Petitioner does not point to, and we do not find there is, an unequivocal, express intent by Congress in the AIA to abrogate immunity for the purposes of inter partes review.  

[Footnote 4 states: Because there is no related federal district court patent infringement (or declaratory judgment of validity) case brought by Patent Owner, we do not decide here whether the existence of such a case would effect a waiver of sovereign immunity.]

Further, we are not persuaded that an application of sovereign immunity to inter partes review will do violence to the patent system. The Supreme Court in Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank, 527 U.S. 627 (1999) held that Congress does not have authority to abrogate Eleventh Amendment immunity with respect to patent infringement by the States, for “Congress identified no pattern of patent infringement by the States, let alone a pattern of constitutional violations.” Id. at 640. Based on the record before us, there is no evidence that the harm to the patent system, described by the Petitioner, will come to pass, let alone exists as a basis to divest States of sovereign immunity.

Finally, we are not persuaded that our tribunal cannot perform the fact-finding duties that Petitioner alleges would be required to determine whether an entity is entitled to sovereign immunity. Our rules and procedures provide for discovery and motion practice which, at a minimum, would provide the parties an opportunity to present arguments and supporting evidence pertaining to sovereign immunity.  

The Federal Circuit decision on this issue will be interesting, particularly if public universities continue to bring more litigation matters involving patents.  However, if there is a pending federal patent infringement claim brought by the university, I believe the PTAB (and Federal Circuit) will find a waiver of sovereign immunity.  The monetization firm argument is interesting.  [Hat tip to the Goodwin Keeping Tabs on the PTAB Alert for the lead to the case.]

University-generated information: Is it more public or private?

The involvement of universities in commercial activities is a complex issue. Roughly speaking, these endeavours can be divided into two categories. First there is the commercialization of publicly-funded university research and the concomitant rise of technology university transfer offers. Secondly, especially in the U.S., universities have sought to earn licence fees through the sale of various paraphernalia bearing their name or emblem. These two spheres of activity, commercializing technology through the licensing of patent and trade secret rights, on the one hand, and earning trade mark/copyright royalties, on the other hand, have largely remained separate and distinct. What happens, however, when these two functions -— technology transfer and goodwill licensing -— are brought together?

This question was raised in connection with an article that appeared in the September 22, 2012, issue of The Economist. Entitled "Artificial Dissemination", the article here focused on the differences that arise in connection with the release of financial data to the public. Government bodies take measures to provide that official data are disclosed to everyone at the same time, so no one can gain a financial advantage, even for a matter of minutes or even seconds in an age of high-speed transactions. Private purveyors, however, prefer to stagger the disclosure of information, whereby those who are willing to pay more are fed the information on a time-priority basis.

The example brought by the article is the situation involving the well-known consumer- sentiment index, compiled by the University of Michigan, which is distributed twice a month. For non-U.S. readers, the University of Michigan is one of America's great public universities. Its index is a closely watched and oft-quoted indicator of consumer sentiment, a topic of particular interest in times of economic challenge.

What is of interest is how this index is distributed. It turns out that Michigan has partnered with Thomson Reuters, the multinational publishing and information company, with the latter serving as distributor of the contents. According to the article, the terms of the dissemination agreement, at least pursuant to a 2010 agreement, provide for the staggering of the disclosure of the information in three stages:

1. Subscribers of the "ultra low-latency" fee receive the information two seconds (!) before 9:55am.

2. Desktop clients receive the feed exactly at 9:55 am.

3. The public receives the feed at 10:00 am.

These seemingly small time differences, even the two second interval for "ultra low-latency" subscribers, can have a potentially huge impact on trading profits.

In exchange for this, Thomson agreed to pay Michigan an annual co-branding/distribution fee. As well, Thomson undertook to pay what is termed a "qualifying" fee that is equal to 25% of so-called "qualifying" revenue.

While such staggering of the distribution of information is legal, it is not free from legal disputes. With respect to the Michigan-Thomson agreement, the article reports that Thomson has threatened to take legal action against certain television networks, including CNBC. The reason: such networks apparently announce the index number at 9:55am, when it reaches their desktop, rather than wait until the 10:00 am general public release.

And so to my question: does Michigan, as a public university, have any special obligation to ensure that the benefits of its branded index are available equally to all members of the public, provided only perhaps that they pay the agreed-upon fee? This is not like the granting of an exclusive licence, where such exclusivity may well be crucial to successfully commercializing the technology. Here, the more clients for the information, the better.

One might retort that staggering the information, as the arrangement with Thomson apparently does, is also intended to maximize revenues, in this case from the compilation of the index. Perhaps so, but unlike the licensing of the technology, such staggering is not essential to the development of the information. By contrast, the exclusive licence may well be the most effective way to ensure that the licensee will take the steps necessary to commercialize the technology.

Even more, given the potential for law suits, should the University be directly connected with the interests of Thomson and news broadcasters, each of which is interested in promoting its particular commercial interests? Co-branding always carries the risk of one party having its name sullied by the activities of its co-branding partner. Is this something that the name and brand of the University of Michigan should be involved in? If government agencies take steps to ensure equal access to the information in the public interest, should not a public university, such as Michigan, or even a private university seeking to commercialize information developed, even in part, from public funds, act differently?